Which is an example of moral hazard?
A) Only people with very high risk of default on loans borrow from banks.
B) Drivers have less incentive to avoid accidents after getting auto insurance.
C) When one bank fails,other banks become more cautious in lending.
D) People living along the Gulf Coast are more likely to buy flood insurance.

Question

Quizplus · Accepted Answer

Moral hazard refers to the increased risk-taking behavior of an individual or entity when they are protected from the consequences of their actions. In this case, drivers have less incentive to avoid accidents after getting auto insurance as they know that they will not have to bear the full cost of the damage caused by the accident.

Which Is an Example of Moral Hazard